What Does Kirtsaeng v. Wiley Mean For the Industry?

By Andrew Albanese
|

Mar 23, 2013

In last week’s landmark ruling, the Supreme Court held that the first-sale doctrine—the provision in U.S. copyright law that enables owners of legally acquired copies to redistribute them—does in fact apply to works manufactured abroad. For those not steeped in copyright, that probably means little. But, experts say, the decision is a major development, both for the industry, and for the broader debate over copyright in the digital age.

The ruling stems from the case of John Wiley & Sons Inc. v. Supap Kirtsaeng, in which Kirtsaeng, a Thai-born U.S. student was sued by Wiley over a business he'd started to help defray his education costs: importing and reselling in the U.S. (via eBay and other Web sites) cheap, English-language foreign editions of textbooks made for exclusive sale abroad. In its suit, Wiley alleged that Kirtsaeng’s operation violated copyright law, specifically, two provisions, Section 602, which prohibits the importation of unauthorized copyrighted works, and Section 106, which prohibits the distribution of unauthorized copies.

In his defense, Kirtsaeng invoked first sale. After all, the books in question were not knock-off, pirate editions of Wiley texts, but the real thing—Kirtsaeng’s family and friends legally purchased the copies overseas and shipped them to him, and as the legal owner, he contended, he was free to resell them.

The lower courts, however, denied Kirtsaeng’s first sale defense, holding that an ambiguous term in the statute limited first sale to works “lawfully made” under the U.S. Copyright Act. Since Kirtsaeng’s imports were printed overseas, where the U.S. Copyright Act is not law, the court held that the copies were therefore not “lawfully” made.

By a 6-3 margin, the Supreme Court disagreed. Writing for the majority, Justice Stephen Breyer said there was in fact no such “geographic” limit to first sale.

The End of Territorial Rights?

At the heart of the case was Wiley’s fear that in an age of global e-commerce and cheap shipping, its cheaper-priced, foreign editions were going to come flooding back into the states, swamping the domestic market. Indeed, Kirtsaeng’s import business was possible because publishers do sell books at different price points in different territories. And with the Supreme Court decision, observers say, the borders are now open.

“If Kirtsaeng can import inexpensive international editions, so can Amazon, or anyone,” explained PW contributing editor James Grimmelmann, a professor at the New York Law School. “In essence, the Supreme Court has eliminated territorial rights as a viable concept. All English-language editions will be competing against each other, which means licensing a U.S. edition, a Canadian edition, and an Indian edition is inviting all three publishers to compete against each other on price.”

In fact, the court expressly acknowledged that its decision was likely to impact territorial rights. “A publisher may find it more difficult to charge different prices for the same book in different geographic markets,” reads the majority opinion. “We concede that is so.” However, the majority held, there is simply “no basic principle of copyright law that suggests that publishers are especially entitled to such rights.”

Glenn Pudelka, a copyright attorney with Edwards Wildman Palmer, said the case is yet another example of how technology is pressuring traditional publishers. “The concept of reselling foreign records or books has been around for decades,” he noted. “But the Internet—eBay in the case of Kirtsaeng—has now made this a major issue for publishers.”

At the same time, the practical effect of the ruling should catch no one flatfooted. There has been talk for years of language rights replacing territorial rights in the digital age. In that light, the verdict does little more than remove copyright as a weapon to enforce a territorial rights trade that many say was unwinding anyway.

You Own It

For libraries, booksellers, public watchdogs, and the tech industry, the decision was hailed as “a total victory.”

A diverse array of stakeholders had lined up against Wiley, and weighed in with amicus briefs detailing a “parade of horribles” that would arise from limiting first sale geographically. Libraries argued that they might not be able to lend books merely printed—not even necessarily published—abroad, and booksellers could not sell used editions. Museums argued they could not confidently display works. And retailers argued that the limits would complicate, if not forbid, the resale of a growing number of goods embedded with copyrighted technology, from smartphones and computers to cars and wristwatches.

In oral arguments, Kirtsaeng’s attorneys also argued that limiting first sale geographically would create an incentive for U.S. companies to manufacture offshore, offering creators who produce their copyrighted goods overseas “endless eternal downstream control over sales and rentals” and the ability to “ruin secondary markets” that compete with them. In other words, print your books overseas, and be rid of the used-book trade forever.

The publishing industry dismissed such scenarios as lavish hypotheticals. But in the final analysis, the court was concerned that the publishers offered no effective counterargument. “Neither Wiley nor any of its many amici deny that a geographical interpretation could bring about these horribles,” the opinion reads, noting that publishers simply dismissed the claims as “purely theoretical” in nature and unlikely to ever happen. “We,” the majority concluded, “are less sanguine.”

In a statement, the Library Copyright Alliance said the decision “vindicates the foundational principle of the first-sale doctrine—if you bought it, you own it.”

Reform!

The decision, however, is not likely to be the final word. In statements following the ruling, both sides referenced a congressional battle that all stakeholders have anticipated from the start of the litigation.

In an interview with PW last fall, Brandon Butler, director of public policy initiatives for the Association of Research Libraries, said the case highlighted “a genuine tension” in the Copyright Act between the first-sale doctrine and the ban on gray market importation. “That tension is really there, in the text, and I don’t think the Supreme Court will be able to resolve it once and for all. No matter who wins, we are all going to be [asking] Congress for a fix to clear up this mess.”

“Because of the potential market harm, and the strong lobbies of the copyright owners, I don’t see this as being the last word on this subject,” said Pudelka. “I wouldn’t be surprised to see a bill proposed in Congress to try to address the divided market issue.”

Grimmelmann agreed. “However one comes out on first sale and imported textbooks," he observed, "the issue, in books and beyond, is too significant to end here.”

In the opinion, it was clear that the ambiguous language of the current law was not equal to the specific, significant task before the Court. In fact, in the final opinion, Justices Breyer and Ginsburg (writing for the dissent) devote significant space to arguing over the proper definition of the word "under."

Ultimately, the majority held that if Congress had intended first sale to be limited by geography they surely would have said so explicitly—after all, it is a rather major detail. “Whether copyright owners should, or should not, have more than ordinary commercial power to divide international markets is a matter for Congress to decide,” Breyer wrote in the majority opinion. “We do no more here than try to determine what decision Congress has taken.”

Ginsburg, however, in her dissent, argued the opposite: Congress used “broad language” she asserted, to “achieve a broad objective.” Had Congress intended “simply to provide a copyright remedy against larcenous lessees, licensees, consignees, and bailees of films and other copyright-protected goods,” she wrote, “it likely would have used language tailored to that narrow purpose.”

For her part, Register of Copyrights Maria Pallante has spoken about the need to more specifically address the kinds digital issues now roiling the copyright debate, and has already begun laying the groundwork for a major overhaul of copyright, dubbed "The next great Copyright Act." But such an endeavor, of course, will be a difficult task, and not just because Congress is apparently incapable of coming together on anything at this point, but because the issues are so complex, the interests so entrenched, and the technology so quickly evolving.

It doesn’t take a brilliant jurist, however, to see that our current copyright system may be buckling under the weight of 21st-century technology issues—whether mass digitization, e-reserves, bills like SOPA, orphan works, or, in the case of Kirtsaeng, the world's increasingly borderless markets. And, in the coming weeks, a decision is expected in Capitol Records v. ReDigi—a case that could apply first sale to the digital realm.

However that case is decided, it is likely to increase calls to shift key aspects of the copyright debate from the courts to Congress.

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